The Legal Options in Shared Ownership
Owning a house, as you already know, is an enormous responsibility. The key word here is “owning.” The names on the deed to a property are accountable for that piece of real estate — to the mortgage holder, to the insurance company, to the local tax office and utilities, and to some degree, even to the neighbors, for keeping up the appearance of the place. Despite that burden, the house is an asset — an important part of one's estate — that you will have to pass on in the case of your death. This is usually done through a will.
If you are single and buying solo, you are likely to have that house in sole ownership, which means you are the only title holder. (You could also take title in a living trust. This is discussed later in the chapter.) When there is more than one owner involved, even when they are married to each other, there can be questions about inheritance and tax consequences of the ownership style they have chosen.
Do not buy with others without fully knowing the financial situation of your prospective house sharer(s). These arrangements work best if everyone involved has similar incomes and assets. You do not want to end up shouldering most of the financial load because your sharer loses his minimumwage job and your higher, professional income has to carry the house.
At this stage, everyone involved in a joint purchase should be deciding how to buy so any problems that come to the surface can be worked out.
Probate is a legal term describing the court process when a will or the authenticity of a will is in question. Probate provides the estate is left to the court to settle. One wants to avoid probate by having a will in place witnessed by two parties, so the specific instructions of the deceased can be followed and influence of third parties is eliminated. In a partnership situation, this is critical if the intent of the deceased is to leave his share of ownership to a partner.
“Well, naturally, we're buying together,” you say. “We'll own the house equally.” Of course, what could be simpler? When one spouse dies, the property automatically passes to the other, without having to go through probate.
This ownership style is known as joint tenants with right of survivorship. When one party dies, usually only a certified copy of the death certificate and an affidavit of survivorship need to be recorded, then the name of the deceased is cleared from the title to that property.
An affidavit of survivorship is a legal term for an official statement that the person who has died is the person whom the joint tenant knew and shared property with. It is used to pass the title to the surviving party.
But just a minute; while that is the usual way a husband and wife own property, it is not necessarily their best choice. By holding a property jointly, some couples are likely to be required to pay larger amounts in estate taxes than they might otherwise owe. Also, in cases where a buyer wants to leave his share of the house to someone other than his current spouse — for example, to children from a previous marriage — owning as joint tenants is probably not the best choice.
There is an alternative to joint tenants. Tenants in common allows each spouse to co-own property, but each can leave his or her share to anyone he or she chooses, not necessarily the spouse. In community-property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), spouses can hold title as community property. Each person owns one-half of the property and can will ownership upon their death.
A very important point to keep in mind is that joint tenancy with right of survivorship overrides both a will and a prenuptial agreement. So, if Karen marries Joe and the two have a prenuptial agreement in which Karen leaves her share of the house to the children from her first marriage, but the two buy property in joint tenancy, upon Karen's death her share of the house automatically becomes Joe's.
Opposite-sex couples who purchase a home together will face more complex issues, such as who will maintain the property, what happens when one party wants to sell, and who will inherit a co-owner's share upon his death. This situation calls for a contract, as well as deciding on an ownership style.
There is no law requiring unmarried sharers to have a written agreement, but it is a wise step to take. A written contract is different than a prenuptial agreement; it does not cover all financial aspects of the sharers' lives, only that of shared housing.
The legal system sometimes has its hands full with couples living together. Cohabitation is still illegal in a handful of states, although those particular laws are rarely enforced. However, there is little uniformity among remaining states regarding the legal status of the millions of couples living together. This legal area continues to change. Such relationships are governed by contract law. When problems arise, they might be decided by a jury in civil court rather than by a family court judge.
The phrase “living together” usually applies to opposite-sex couples, but same-sex couples who live together have similar concerns owning property. Single people in any long-term relationship may want to pass the property they co-own to each other. Or they might want to will their share to a designated family member.
Besides having a strong contract, you should also keep careful records of all major expenditures and purchases that either of you make while you are together. This may seem unromantic or petty, but you never know what may happen in the future, and money, assets, and estates are sensitive and significant issues.
If you choose to buy a home with friends or relatives, such as brothers, sisters, or cousins, you will almost certainly want to purchase a home as tenants in common. You might also consider forming a partnership, particularly if there are more than two of you who want to co-own property. An accountant can help you choose what makes the most sense for all of you.